• 3Q14 core PATMI surged 39.6% YoY
• Secured S$119.3m of new orders
• Targeting 10%-15% core PAT growth

3Q14 results within expectations

CSE Global Limited’s (CSE) 3Q14 results were in-line with our expectations. Revenue grew 15.2% YoY to S$112.3m on higher sales achieved in Asia Pacific and the Americas regions, but partially offset by weakness in its Europe/Middle East/Africa market. Correspondingly, CSE’s core PATMI from continuing operations jumped 39.6% YoY to S$9.4m. This was attributed to topline growth, better operating margins from good cost control and a big decline in finance expenses. CSE’s 9M14 revenue grew 9.2% YoY to S$313.6m while core PATMI from continuing operations increased 4.7% to S$25.0m. This formed 77.2% and 72.8% of our FY14 projections, respectively.

Strong order wins

Despite headwinds in the oil and gas sector emanating from a plunge in oil prices and reduction in capex by oil majors, CSE still managed to boost its new order wins for 3Q14 by 29.1% YoY to S$119.3m, such that 9M14 contracts secured rose 6.3% to S$288.1m. The bulk of the orders won came from projects in the Gulf of Mexico. Its outstanding order book stood at S$201.7m as at 30 Sep 2014 (end 2Q14: S$194.7m). Another positive highlight of 3Q14 came from the positive S$8.8m of operating cashflow generated, an improvement from the S$10.0m of cash consumed from operating activities in 1H14. Looking ahead, CSE reiterated its target of growing its core PAT by 10-15% organically in FY14.

Roll forward valuations and maintain HOLD

CSE’s business model entails focusing on maintenance projects which provide the group with a more resilient recurring income stream. While we raise our FY14 and FY15 revenue forecasts by 2.6% and 1.8%, respectively, our PATMI projections are kept largely unchanged, as we also assume higher tax expenses given its increasing exposure to higher tax regions like the U.S. Rolling forward our valuations to 9x FY15F EPS, we derive a higher fair value estimate of S$0.68 (previously S$0.64). Although we like CSE for its attractive FY14F dividend yield of 4.0% and forecasted ROE of 17%, we believe current valuations are fair, with the stock trading at FY14F and FY15F PER of 10.5x and 9.2x, respectively. Maintain HOLD.

Source: OCBC Research - 13 Nov 2014